How scaling up collaboration and engagement can help tackle scope 3 upstream emissions

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Trine Filtenborg de Nully, World Economic Forum Fellow; Project Leader, Boston Consulting Group (BCG), Pim Valdre, Head, Climate Ambition Initiative, World Economic Forum

• Tackling scope 3 upstream emissions is paramount to corporate decarbonization – on average, upstream emissions are 11.4 times greater than operational emissions.
• Upstream supply chain emissions are notoriously difficult to tackle as they fall outside of a company’s direct control. Only through collaboration with suppliers, at scale, can these emissions be addressed.
• The Alliance of CEO Climate Leaders, the world’s largest CEO-led climate alliance, is initiating an ambitious action plan to tackle scope 3 upstream emissions through supplier collaboration and engagement.

The global climate target of 1.5°C is slipping out of reach. It now calls for a 7% annual emissions reduction, more than the climate reduction impact from COVID-19, and against the current trend of a 1.5% annual increase, as highlighted in the joint World Economic Forum and BCG white paper The State of Climate Action. Now, more than ever, it is time for corporates to step up near-term emission mitigation to tackle the climate action gap, as every fraction of a degree matters.

Scope 3 upstream emissions are an emission hotspot for many companies and on average ~11.4 times greater than operational emissions. Yet, these emissions are notoriously difficult to tackle as they expand beyond a company’s direct CO2 emissions, as one company alone can have more than thousands of suppliers. To tackle scope 3 emissions, upstream collaboration with suppliers – at scale – is needed.

Supply chain decarbonization requires a systemic approach rooted in supplier collaboration

Across industries, supply chain decarbonization targets have seen a rapid rise in recent years (see Figure 1). However, supply chain decarbonization is challenging. In a recent survey of 230 organizations, carried out by SBTi and BCG, 50% of respondents self-reported being “off track” to deliver on their scope 3 target despite 40% of all respondents indicating that executives are directly accountable for the decarbonization work.

To follow through on the supply chain decarbonization targets, corporations must come together with suppliers and collaborate at scale, as emissions often sit upstream in their value chains.

To succeed, corporations and their procurement teams need to apply a systematic and structured approach to supplier engagement following three consecutive steps:

Step 1: Identify and prioritize suppliers

First, corporations must understand the emission profiles of its supplier base to identify and prioritize suppliers with the biggest impact on scope 3 upstream emissions.

In addition, supplier emissions should be analyzed at a category level, as different categories will face different decarbonization challenges and must be addressed with tailored levers. The category level analysis enables a like-for-like comparison of suppliers based on their carbon footprint.

Step 2: Launch the supplier ask

The second step is to define the supplier engagement journey and launch the supplier ask to kick-start their decarbonization work.

Suppliers will have different sustainability maturity levels and therefore it is important to envision the supply chain decarbonization as a journey towards a “North Star” along which suppliers evolve, rather than an immediately achievable target.

Once the “North Star” is set, progress towards it must be reversed engineered and communicated to the supplier in the supplier ask.

Discover

What’s the World Economic Forum doing about the transition to clean energy?

Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.

Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.

Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.

Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.

To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.

Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.

Is your organisation interested in working with the World Economic Forum? Find out more here.

Step 3: Engage and support suppliers

As the final and most important step, corporates must align supplier incentives, develop support programmes and monitor progress towards the “North Star”. To facilitate true change, continuous supplier engagement and support are paramount.

Supply chain decarbonization is not straightforward and cannot be done using siloed thinking. Yet, it is feasible through a structured approach, building on supplier collaboration at scale, with successful companies reaping the benefits of significant emission reductions and closer supplier relations.

Alliance of CEO Climate Leaders’ action plan and support hub

In an effort to scale collaborative action across value chains, the Alliance of CEO Climate Leaders aims to bolster scope 3 decarbonization through its scope 3 upstream action plan. Out of the total Alliance member base, member companies with a combined +0.5 Gt scope 3 upstream footprint, more than the annual emissions of Australia, have endorsed the action plan as guidance.

The action plan targets scope 3 upstream emissions through dedicated supplier engagement. It entails guidance on decarbonization actions and milestones alliance members endorsing the action plan should work towards (see Figure 2).

Figure 2: The scope 3 upstream action plan by the Alliance of CEO Climate Leaders.

The Alliance of CEO Climate Leaders is currently developing an online scope 3 upstream support hub to help members and suppliers to drive value chain emission reductions. The support hub will become a one-stop shop for procurement teams and suppliers to guide supply chain decarbonization, including baselining of emissions, target-setting, levers to decarbonize and best practices.

The Alliance encourages fellow business leaders and suppliers to join the action plan to tackle scope 3 upstream emissions.

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